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Tinker, not taper may be Bernanke's final act

Tuesday, December 17, 2013 - 02:07

Dec. 17 - The Federal Reserve begins its final two-day meeting of the year and anticipation is high as to whether policymakers will start to reduce extra stimulus or at least provide any hints on when they plan to. Conway G. Gittens reports.

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As the Federal Reserve sits down for two days of deliberations- policymakers are facing signs of an economic revival: Unemployment is dropping. Retail sales are picking up. There's a slower, yet still vibrant housing recovery. And the manufacturing sector continues to chug along. Meanwhile, inflation is tame and barely creeping higher Put that all together and the time has come for the Federal Reserve to start slowing down the extra stimulus it's been providing to the economy says Standard and Poor's Beth Ann Bovino. SOUNDBITE: BETH ANN BOVINO, CHIEF U.S. ECONOMIST, STANDARD AND POOR'S (ENGLISH) SAYING: "I expect and like the Fed to move this December but I don't expect them to move quickly. I'm expecting a small amount, maybe 10 billion (dollars) this time around and slowly, slowly taper down until its zero probably by the third quarter of next year." But not everyone is convinced the Fed thinks the economy is healthy enough to stop getting $85 billion a month in medicine. Daniel Morris is chief investment strategist at TIAA-CREF. SOUNDBITE: DANIEL MORRIS, CHIEF INVESTMENT STRATEGIST, TIAA-CREF (ENGLISH) SAYING: "It's just also a few data points and data points can be quite volatile. I think it's more likely they are going to want to see a few more data points to confirm that the trajectory actually seems pretty positive, which is the key reason that we think an actual tapering probably isn't likely to happen before March." If the Fed decides not to taper now - it could decide to tinker - showing it appreciates the economic recovery without threatening it. Analysts say Bernanke could use what may be his last meeting to slow re-investing some or all of the proceeds from the bond program, which would drain some of the liquidity. Two - he could decide to keep spending 85 billion, but spend more on mortgage backed securities and less on Treasuries, which would target more of the help directly to the housing market. And three - he could make clear that he won't make a shift in policy until the unemployment rate, which has come down, comes down even further to say six percent or lower. To be sure, whatever happens at the meeting's conclusion on Wednesday, the stage is set for his successor Janet Yellen.

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Tinker, not taper may be Bernanke's final act

Tuesday, December 17, 2013 - 02:07